In the Union Budget for 2023-24, the government expanded the scope of full rebate on income tax under the new tax regime to an annual taxable income of Rs 7 lakh from Rs 5 lakh earlier.
The government has provided additional relief to taxpayers under the new income tax regime by tweaking it so that those earning over the tax-free limit of Rs 7 lakh per annum do not end up paying tax in excess of their incremental income over the threshold. The decision is likely to further sweeten the new tax regime, particularly for small taxpayers.
In the Union Budget for 2023-24, the government expanded the scope of full rebate on income tax under the new tax regime to an annual taxable income of Rs 7 lakh from Rs 5 lakh earlier. However, those earning even marginally higher than the threshold were required to pay tax on sub-Rs 7 lakh slabs as well. To provide relief to such taxpayers, the government has amended the Finance Bill, limiting the tax outgo to the incremental taxable income over Rs 7 lakh per year.
For instance, as per the original proposal presented as part of the Budget, if a taxpayer had a taxable income of Rs 7 lakh per annum, she was not required to pay any income tax due to the full rebate. But if she had an annual taxable income of Rs 7,00,100 per year, she was liable to pay Rs 25,010 as income tax as she was not eligible for the full rebate. This meant that despite earning just Rs 100 over the rebate limit, the taxpayer was saddled with over Rs 25,000 as tax liability. With the amendment now, her total tax liability would be Rs 100–the income that exceeded the threshold of Rs 7 lakh.
The government is going all out to convince individual taxpayers to migrate to the new income tax regime by overhauling slabs and offering additional sops to the lowest as well as the topmost strata of taxpayers.
After announcing the changes to the new tax regime in her budget speech, Sitharaman had told reporters that the government’s effort was to make the new tax regime, which does not have any exemptions, lucrative enough for taxpayers. Though the new regime was introduced in 2020, migration to it from the old and deduction-heavy tax system was extremely underwhelming so far. The government expects that the tide will now turn as the new regime will lead to savings for most taxpayers, except those claiming heavy tax exemptions.
While no changes were made in the old tax regime in the Budget, the government increased the scope of rebate to those with a taxable income of Rs 7 lakh per year from the earlier limit of Rs 5 lakh in the new system. The super-rich–those with annual income of over Rs 5 crore–will also benefit from a significant cut income tax surcharge to 25 per cent from 37 per cent under the new regime. This would reduce the effective rate of income tax for this group to 39 per cent from 42.7 per cent. The tax burden under the new scheme was also rationalised by revising its slabs and introducing the benefit of standard deduction. At the time, the revenue foregone due to changes in the new tax regime was pegged at around Rs 35,000 crore.
Source: https://indianexpress.com/article/business/economy/additional-relief-under-new-tax-regime-to-those-with-over-rs-7-lakh-year-taxable-income-8516889/
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